The Lure of Clean Energy (Eguana Technologies)

Eugena Technologies is a development stage company involved in the design and manufacture of energy storage systems for both the residential and commercial markets  The company is involved in a multi year agreement with Korean giant LG Chem to deliver an AC battery for the North American residential market.  (NEWS STORY).  Their Eguana AC battery is a grid ready Lithium-Ion storage system, with news just released about a third order from partner E-Gear (NEWS STORY).

Penny stocks are dangerous things, they're the ultimate risk/reward play, with the potential for both incredible gains and for massive losses.  When it comes to penny stocks there is one thing I consider to be absolutely essential, you have to get in early before the herd shows up.

Often you will see a stock trading for pennies, nickels and dimes when volumes are light, go to $1+ as volumes soar into the millions for a sustained period.  The herd storms in thinking $1 or $2 is still cheap.  Then all too often the bag closes, the smart money escapes with cash and the dumb money retail crowd is left holding shares, aka the dirty bag.

"Green Energy" is all the rage right now.  Energy is nothing new, but the world is changing.  We're going from a long period of dirty energy, and entering into a time of transition with the world, (certainly the developed world) throwing all kinds of money at clean energy projects: Wind mills, solar panels, electronic vehicles and lithium batteries for storage being just a few examples.

And as often happens with new technologies and paradigms, many of the companies with the greatest potential qualify as penny stocks.

I was fortunate to get into some junior Li miners when things were quiet.  Now though, some of those thinly traded stocks are seeing volumes in the millions.   Retail investors, listening to paid promotional outfits are being whipped into a buying frenzy.

You may have heard the expression:  If you want to taste the fruit, you have to go out on a limb.

I think there's a lot of validity to that old bromide.  But I would add to it by saying:  When the herd moves out on the limb, the branch often snaps.

One thing I want to make perfectly clear, development stage companies often pay promotional outfits to garner attention and investment, it comes with the territory.  For me its a question of degree, and I keep a close eye on volumes as a barometer to gauge when the retail herd is storming in.  Also its important to remember that all volume isn't created equal.  1 million shares trading at 10 cents is not the same as 1 million shares trading at $1+.  There's a lot more cash changing hands at a buck.

That's a lot of preamble I know, but I'm older and tend to be long winded.

Eguana Technologies is a battery storage company that came onto my radar last Thursday, and after spending a few hours researching it I took out a position on Friday.  In doing my Due Diligence (DD) I had my cynic's cap on, expecting it to be just another penny stock hype job.  However the only promotional outfit I found was some site called MidasLetter.com that did an "interview" with Eguana's CEO in November of 2015.

Here's the link: Midas Letter Interview

In checking the trading though there wasn't a big surge in volume after that interview came out.  In fact there were many days after that date where (according to Yahoo Finance) volumes were less than 100,000, which I like to see.  As I mentioned before, some promotion is to be expected with development stage companies, so long as it doesn't cause a big jump in both the PPS and in volumes trading I'll keep doing my research.

Before even checking for promotion and hype I usually look at the chart, and the chart for EGT.V to me looks incredibly promising.  Had I seen a stock that had already climbed 500% or more I would have stopped right there. But it looks to me like EGT.V has plenty of upside potential left.

The PPS moved above the 50 day moving average in early March and soon after moved over the 200 dma.  There was also a Golden Cross at the beginning of April when the 50 dma crossed over the 200, a technical event often considered very bullish.  One note on the Golden Cross though, some TA aficionados do not consider a Golden Cross to be truly Golden unless the 200 dma is climbing.  For my own part I consider both to be bullish, but more bullish if the 200 is also on the rise.

Also take note the large volume spikes on days the PPS climbed (colored green).  I view that as another bullish indication, I like seeing the PPS climbing on big volume days and pulling back on lower volume.   Retail investors tend to focus on price, but I consider a climb of 2 cents on volume of 1 million to be more significant than a drop of 10 cents on volume of just 50,000 shares.

Okay, I can just hear all of my readers right now (both of them) "ENOUGH, ALREADY...WHAT ABOUT THE FUNDAMENTALS"?!?!?

Before I get into the fundamentals I want to point out that I already consider them priced in. Fundamental data is always old information, weeks if not months old.  I did not risk money on EGT.V based on what they've done in the past, but rather on the potential for what they may do in the future.

With a stock trading in and around 15 cents I wasn't expecting much.  But I actually came away a bit surprised.

Market Cap      23.5 Million CDN

Shares Issued   167,778,702 (as of April 15th 2016)

To read the company's filings you can go to Sedar.com, here is a link to their Management Discussion & Analysis for the 3 months ending December 31st 2015.  Take note of the debt situation (they paid off their LOC) and existing sales.

Sedar Filing MD&A

They have the "going concern" tag you typically see with stocks trading at this level.  However financing news for $1.2 million came out recently, and it appears to me the company is well capitalized going forward.

(FINANCING NEWS)

I'm going to end this blog entry here with one last fundamental metric I consider to be important, that of short interest.  I used to view Short Sellers as an enemy to be defeated, but not any more.  Short Selling is an incredibly risky proposition, especially with a penny stock.  If bears have raided a stock, I assume they have a very good reason.  Sometimes though I believe short selling is done for manipulative reasons by those looking to scare retailers into selling low by injecting some fear into the market.

Short interest for EGT as of April 15th was just 7,900 shares...less than one hundredth of one percent. However back at the end of January of this year that number got up over 2 million, still only 1.4% of the issued, but regardless a fair sized number.  It looks to me like that little bear raid may have been an effort by some looking to accumulate, and its something I think may happen again if the PPS continues on this up trend, which is what I am hopeful of, and in fact expecting.

Comments are always welcomed, just no profanity please.  And please read the disclaimer at the very bottom part of this blog.